We recently compiled a list of the 12 Best AI Penny Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Research Solutions, Inc. (NASDAQ:RSSS) stands against the AI penny stocks.
AI penny stocks are typically small-cap companies that focus on artificial intelligence technologies, such as machine learning, automation, and data analytics. These stocks, typically trading under $5.00 per share, belong to emerging tech firms that develop AI-powered software, robotics, or cloud-based AI solutions. Investors are drawn to AI penny stocks due to their high growth potential, as advancements in AI continue to disrupt and/or complement industries like healthcare, finance and cybersecurity. However, these stocks also come with significant risks, including volatility, low liquidity, lack of financial stability, and the potential for the share price to go to zero. These risks are even more pronounced in the context of the Chinese startup called “DeepSeek” potentially disrupting the AI inferencing market, meaning that some of the AI software and applications developed by penny stocks could eventually become commoditized and thus impossible to profitably monetize.
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Hedge funds have been quite active in the AI space, as the most widely owned companies by hedge funds are large cap technology stocks with strong exposure to the AI megatrend. However, as hedge funds are striving to maximize their potential alpha, they are also actively seeking investments in the less followed small cap space and especially penny stocks. Hedge funds are also very keen to react to major market shifts and thus provide insights into potential major risks. Here is what Horizon Kinetics commented about the DeepSeek development during their Q4 2024 letter published in January 2024:
“How terrible are the implications for spending growth of the AI hyperscaler companies now that AI models can be developed for $6 million instead of a gazillion dollars? If that order-of-magnitude performance/cost breakthrough is true, that might be an even greater boon to AI spending. The use cases for AI are so deep, wide and all-pervading in the true economic productivity sense, that the pace of adoption and the volume load upon data storage, retrieval and processing might even accelerate. The build-it-and-they-will-come phenomenon.”
It is certain that some hedge funds view the recent developments as favorable and potentially fueling more research and progress from AI developers, many of which are penny stocks. If training and inferencing of leading AI models become exponentially cheaper, this per se means exponentially lower barriers to entry for startups and much lower budget requirements for the budget-tight small cap stocks. This shift could lead to a surge in innovation, allowing smaller AI firms to compete with established players by developing cutting-edge models at a fraction of the previous cost. Additionally, reduced computational expenses may attract more venture capital and institutional interest, further accelerating the growth of AI-focused penny stocks. The key takeaway for investors is that, while the 2023-2024 market gains were fueled by large caps, it may be finally that moment when mid and small caps, including penny stocks, follow through, by leveraging the growing GPU infrastructure base at big tech hyperscalers as well as the Chinese technology contribution. If that is the case, then observing where smart money (hedge funds) is flowing may offer unique insights into the best AI penny stocks to buy. Given this, we will take a look at some of the best penny stocks according to hedge funds.
A closeup of a software engineer showing the complexity of software development.
Our Methodology
To compile our list of AI penny stocks, we used Finviz to filter the technology companies with a share price of less than $5.00, as of March 14. We then individually identified companies that have significant revenue exposure to AI products or services. Finally, we compare the list with our proprietary database of hedge fund ownership as of Q4 2024 and include in the article the top 12 stocks with the highest number of hedge funds that own the stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Research Solutions, Inc. (NASDAQ:RSSS)
Number of Hedge Fund Holders: 8
Research Solutions, Inc. (NASDAQ:RSSS) is a provider of cloud-based technologies that streamline the discovery, access, management, and analysis of scientific content. Their platforms, including Article Galaxy and Discover, enable researchers to efficiently access and manage scientific literature, leveraging advanced AI and natural language processing technologies. Serving over 1,300 research organizations globally, including more than 70% of the world’s top pharmaceutical companies and prestigious universities, RSSS’ tools facilitate literature discovery, access, and management, enhancing research productivity and innovation.
Research Solutions, Inc. (NASDAQ:RSSS) delivered strong Q2 2025 results with total revenue increasing 15.5% to $11.9 million, driven by a 47% growth in Platform subscription revenue to $4.6 million. The company achieved record organic net new deployments and strong Annual Recurring Revenue (ARR) growth, ending the quarter with $19.1 million in annual recurring revenue, up 23% YoY. The ARR is composed of $12.7 million B2B ARR and approximately $6.4 million in normalized ARR from Scite’s B2C subscribers. Gross margin improved significantly to 48.9%, a 540-basis-point increase over the prior year, primarily due to the revenue mix shift towards the higher-margin Platforms business.
Research Solutions, Inc. (NASDAQ:RSSS) also demonstrated strong cash generation with $1 million in operating cash flow for the quarter and $5.8 million on a trailing 12-month basis. Notably, Scite, which was acquired in December 2023, experienced over 75% pro forma revenue growth over the prior year quarter, leading to an increase in the projected contingent earnout liability. The company has implemented strategic changes, including splitting the sales team into corporate and academic focused teams, which has resulted in increased deal flow. Looking ahead, management is focusing on improving UX and CX across platforms, continuing AI integration into workflows, and enhancing instrumentation and analytics capabilities. With eight hedge fund holders at the end of Q4 2024, RSSS is one of the best AI penny stocks to invest in according to hedge funds.
Overall RSSS ranks 8th on our list of the best AI penny stocks to buy according to hedge funds. While we acknowledge the potential of RSSS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RSSS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
